In her speech at the Guardian Conference on capitalism in crisis, Jayati Ghosh, professor of Economics at Jawaharlal Nehru University, New Delhi, states that the financial crisis is not all bad news but rather offers an opportunity for alternative change. In her explanation Ghosh traces the historical pervasiveness of the current crisis back to the emergence of three simultaneous imbalances. The first imbalance describes the high interlinkages between the financial and the real economy. In order to avoid uncontrollable side-effects of not taking the counterparty risks, states had to nationalize banking. Ghosh, however, points out that the socialization of losses can only be considered as a transitional solution since it is boosting the second, macroeconomic disequilibrium. As a matter of fact, there is no alternative to reduce current account deficits. In particular, the U.S. debt burden – serving as an engine of the unequal demand boom – has to decrease. Coordinated expansion provides not only the basis for fiscal, but also for the waste of natural resources. Though the Club of Rome declared the Limits to Growth more than 35 years ago, pollution, congestion and degradation remain unsolved.
Implicitly referring back to the notion of creative destruction (Marx 1857; Schumpeter 1942), Ghosh suggests making a virtue out of necessity and to turn the crisis into an opportunity. She argues to change the hitherto unequal and unsustainable economy via political decisions. Put more abstractly: A system is more likely to absorb variety in a state of crisis than in a state of stability. However, given the diversity of national economies, the therapy of establishing a democratically global financial governance by civil pressure groups and social movements seems neither feasible nor desirable. Due to functional differentiation and the complexity of modern societies, the economy can simply be managed by its own operations. International economy only knows its own (payment) language. Sustainable solutions thus have to be rewarded by consumers, while national policies, as external decisions, can only create confidence in the system through bailouts – leaving global finance as unsafe as ever.
References
Schumpeter, Joseph [1942] 2008: Capitalism, socialism, and democracy. 1st edition. New York: HarperPerennial.
Marx, Karl [1895] 1993: Grundrisse: foundations of the critique of political economy. London; New York: Penguin Books in association with New Left Review.
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